(Montreal) In the midst of a surge in the cost of living, the salaries of Quebecers have been increasing more slowly than those of Ontarians in recent months, in a context of economic uncertainty.
The moving average salary increase between May and August is 3.5% in Quebec. The pace is 4.9% in Ontario, according to data provided by Desjardins Group chief economist Jimmy Jean.
This figure speaks to the cooling of the job market while job creation “stagnates” in Quebec since the start of the year and the number of vacant positions is decreasing, explains the economist in an interview on Wednesday, on the sidelines a presentation on Desjardins Group’s economic forecasts.
Ontario is also experiencing a lull in the job market, but the trend is less pronounced than in Quebec. “Economic strength is much more depressed in Quebec than in Ontario,” says Mr. Jean.
Median income is an important element in the Legault government’s objective of reducing the wealth gap with Ontario.
The recent deceleration in wage growth is a cyclical trend, explains the chief economist. “I expect we’ll see some slowdown in Ontario at that level. »
Despite everything, significant challenges complicate Prime Minister François Legault’s objective. “It cannot be denied that the power of attracting high-talented individuals abroad is much stronger in Ontario than it is in Quebec. »
Quebec has industrial clusters that attract highly paid professionals, but it remains difficult to compete with Ontario, which hosts the head offices of many large Canadian companies. “It’s the hub of corporate headquarters in Canada, with high-paying jobs. »
The effect of the increase in interest rates is only just beginning, in particular because there are still households who have not yet renewed their term, underlines Mr. Jean. “We’ve barely entered the zone of maximum effect. As of the beginning of the month, it has been 18 months since the first rate hike. We know that 18 to 24 months is the area of maximum effect. The bulk of the effect is still ahead of us. »
The Canadian economy experienced a negative fourth quarter of 2022 and a negative second quarter of 2023. Since these are not two consecutive declines, the technical definition of a recession is not met, “but two of the last three quarters are negative.”
Mr. Jean anticipates that the Canadian economy will be in recession during the first half of the year.
The increase in rates considerably eats into the budgets of owners who renew the term of their mortgage loan, adds the economist.
The effect will be even greater for first-time buyers who had a variable rate and who would not have increased their payment. If they renewed “as we speak,” their payment would increase by 35%.
“With the key rate that we forecast, we would be talking about 40% in 2025-2026. However, if we applied the scenario that the markets are currently anticipating, that is to say almost no cuts in the key rate, we would be talking about a 60% increase in the payment. […] It is extremely penalizing from an economic point of view. »
Mr. Jean predicts that the Bank of Canada’s key rate will remain stable until a first rate cut in April. “At the end of 2024, we should be at 3.5% interest rate (the key rate has been at 5% since July 12). »
The economist believes it is possible that Canadian banks will lower their rates in anticipation towards the end of the year or early 2024. “The potential for further increases, in our view, is relatively limited. We’re at a 15-year high for real rates. »
“It won’t be a huge reprieve,” he warns. Normally, rates go up in stairs and down in an elevator. There, they will fall in steps, unfortunately, because we do not think that inflation will return to the 2% target before 2025.”
